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Can Market Participants Report Their Preferences Accurately (Enough)?

Author

Listed:
  • Eric Budish

    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)

  • Judd B. Kessler

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract
In mechanism design theory it is common to assume that agents can perfectly report their preferences, even in complex settings in which this assumption strains reality. We experimentally test whether real market participants can report their real preferences for course schedules “accurately enough” for a novel course allocation mechanism, approximate competitive equilibrium from equal incomes (A-CEEI), to realize its theoretical benefits. To use market participants’ real preferences (i.e., rather than artificial “induced preferences” as is typical in market design experiments), we develop a new experimental method. Our method, the “elicited preferences” approach, generates preference data from subjects through a series of binary choices. These binary choices reveal that subjects prefer their schedules constructed under A-CEEI to their schedules constructed under the incumbent mechanism, a bidding points auction, and that A-CEEI reduces envy, suggesting subjects are able to report their preferences accurately enough to realize the efficiency and fairness benefits of A-CEEI. However, preference-reporting mistakes do meaningfully harm mechanism performance. One identifiable pattern of mistakes was that subjects had relatively more difficulty reporting cardinal as opposed to ordinal preference information. The experiment helped to persuade the Wharton School to adopt the new mechanism and helped guide aspects of its practical implementation, especially around preference reporting.

Suggested Citation

  • Eric Budish & Judd B. Kessler, 2022. "Can Market Participants Report Their Preferences Accurately (Enough)?," Management Science, INFORMS, vol. 68(2), pages 1107-1130, February.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:2:p:1107-1130
    DOI: 10.1287/mnsc.2020.3937
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    References listed on IDEAS

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    Cited by:

    1. Romero-Medina, Antonio & Triossi, Matteo, 2024. "Strategic priority-based course allocation," Journal of Economic Behavior & Organization, Elsevier, vol. 226(C).
    2. Daniel Kornbluth & Alexey Kushnir, 2024. "Undergraduate Course Allocation through Competitive Markets," Papers 2412.05691, arXiv.org.
    3. Di Feng, 2023. "Efficiency in Multiple-Type Housing Markets," Papers 2308.14989, arXiv.org, revised Feb 2025.
    4. Gian Caspari & Manshu Khanna, 2025. "Nonstandard Choice In Matching Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(2), pages 757-786, May.
    5. Pourbabaee, Farzad & Echenique, Federico, 2025. "Binary mechanisms under privacy-preserving noise," Journal of Economic Theory, Elsevier, vol. 224(C).
    6. Fedor Sandomirskiy & Philip Ushchev, 2024. "The geometry of consumer preference aggregation," Papers 2405.06108, arXiv.org.
    7. Rustamdjan Hakimov & Dorothea Kübler & Siqi Pan, 2023. "Costly information acquisition in centralized matching markets," Quantitative Economics, Econometric Society, vol. 14(4), pages 1447-1490, November.

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